Key Governance Developments -  May 2023

Mixed fortunes for activists and investors pushing large companies towards stronger and faster climate action
Activist groups and institutional shareholders are pushing for faster and more effective action by companies to curb greenhouse gas emissions and set out credible climate transition plans, but after high-profile successes in recent years, results so far in 2023 have been more mixed. In the US, the issue has been complicated by retaliation from Republican state politicians against financial institutions that incorporate sustainability factors into their lending or investment policies. In recent days a motion by climate activist group Follow This and backed by several pension funds, calling on oil and gas producer Shell to to set emissions reduction targets for 2030, attracted just 20.2% of votes at the group's annual general meeting, although under UK law it must report within six months on actions it has taken. BlackRock, which has pursued an activist stance in using its votes in companies within its portfolio, has scaled back its support for AGM climate resolutions this year. And at its own shareholders' meeting, fewer than 10% voted in favour of a resolution requiring the group to report on how it can improve pension fund client returns via stewardship and proxy voting, and less than 1% for a motion on the company’s diversity policy.

Carrefour faces shareholder pressure over climate strategy and scope 3 emissions
Asset manager Phitrust has written to other shareholders in French supermarket group Carrefour seeking their support for its demand for more detailed explanation by the company’s board of its climate strategy and policy toward scope 3 emissions in its supply chain and by customers. Paris-based Phitrust says figures published by the group do not include emissions from franchised stores, which account for 90% of the total in France and 76% elsewhere in Europe. Edmond de Rothschild Asset Management, La Banque Postale Asset Management, Sycomore, MN, OFI Asset Management, Groupama Asset Management, Candriam and others are backing the motion.

Best source: 
Les Echos (subscription required)
See also: Reuters (free registration, in French)

Most shareholders back Shell board over climate resolution plans
Shareholders have backed the energy transition plans of oil and gas group Shell, with just 20.2% voting at the group's annual general meeting in favour of a motion put forward by climate activist group Follow This and backed by several pension funds, requiring Shell to set emissions reduction targets for 2030. However, under the UK corporate governance code, Shell will have to report within six months on actions it has taken, given the proportion of investors that approved the resolution.

Best source: 
The Guardian
See also: ESG Clarity
See also: Responsible Investor (subscription required)
See also: Reuters (free registration)

UK pension funds to question asset managers over voting records at fossil fuel company AGMs
Members of the UK Asset Owner Roundtable are to meet with asset managers after the annual general meeting season to discuss their voting records on climate-related issues at European oil and gas companies. Group members including insurer Scottish Widows, the Church of England Pension Board and Brunel Pension Partnership are concerned that the managers' votes may not be serving investors' long-term interests, could delay the climate transition and may contribute to failure to achieve Paris Agreement goals. The organisation says short-term financial performance may be outweighing the long-term health of pension funds, despite warnings from the United Nations and the IPCC about the economic risks of delaying action to curb climate change.

Best source: Reuters (free registration)
See also: Responsible Investor
See also: Professional Pensions

Commission may drop mandatory greenhouse gas emission disclosure from European sustainability reporting requirements
The European Commission may drop mandatory reporting from more than 80 disclosure requirements and 1,000 data points, including corporate greenhouse gas emissions, in standards for the forthcoming Corporate Sustainability Reporting Directive set to be adopted as a delegated act before the end of June. The shift would reject the advice of the European Financial Reporting Advisory Group, which advocates mandatory reporting of scope 1, 2 and 3 emissions. The Commission may stipulate that disclosure requirements, apart possibly from disclosure of companies preparing their sustainability statements, would instead be subject to materiality assessments, and propose further implementation phase-ins and reduced scope for some disclosures. Meanwhile, a survey has found that only 40% of UK firms likely to fall within the scope of the directive because of their size and international activity are confident that they will be ready to comply with the requirement to measure emissions from the start of next year for  reporting in 2025.

Best source: Responsible Investor (free registration)
See also: edie

European company finance executives complain about EU’s green taxonomy guidance and implementation
The finance directors of European businesses including BMW, Telefónica and BP have called on the European Commission to improve its guidance on the EU's green taxonomy and to delay the introduction of new reporting rules under the Corporate Sustainability Reporting Directive to give companies time to comply with the requirements. The finance heads complain that definitions and interpretation of sustainability-linked expressions are unclear and divergent, not comparable, and unreliable for use by investors. The CFO Platform of the European Round Table for Industry includes the chief financial officers of around 30 companies.

Best source: Financial Times (subscription required)
See also: Table.Media (free registration)

UK regulator proposes London Stock Exchange rule changes to reverse slide in listed companies
The Financial Conduct Authority has proposed merging the London primary and secondary stock exchange categories and eliminating certain listing requirements. The combined board would have lower listing eligibility requirements by ending the need to provide historical financial and current working capital information. Listing rules would also give company founders the ability to keep control of companies through enhanced voting rights and be more welcoming to dual-share class structures, while listed companies would not have to conduct mandatory shareholder votes on certain transactions, including deals with related parties. The changes are intended to reverse a decline in the number of companies listed on London's main market from 2,101 in 2003 to 1,097 today and a slump in IPOs from an average of 177 a year before 2008 to 66 since, but the regulator has warned that they would entail greater risks to investors in UK-listed companies.

Best source: Financial Times (subscription required)
See also: Reuters (free registration)
See also: The Guardian
See also: Financial Conduct Authority

HSBC shareholders reject AGM propositions calling for spin-off of Asia business and dividend increase
HSBC’s shareholders have voted at the group's annual general meeting against a motion supported by its biggest investor, Chinese insurer Ping An, calling for the bank's Asian business to be spun off into a separate company. Investors also rejected a proposition to require the payment of a guaranteed level of dividends. HSBC chairman Mark Tucker and the board had argued that the proposals would destroy value and put shareholders' dividends at risk.

Best source: Financial Times (subscription required)

Fed attributes Silicon Valley Bank collapse to management failings alongside legislation and supervisory missteps
The Federal Reserve has criticised the management of Silicon Valley Bank in a report on the institution's failure, but it also attributes responsibility to legislative changes exempting regional banks from closer supervision overseen by Randal Quarles, the Fed’s former vice-chairman for supervision appointed by president Donald Trump, as well as missteps by bank regulators. The Fed says supervisors had identified deficiencies stemming from the bank's rapid growth and inadequate compliance processes, but they failed to insist on the urgency of remedies, giving Silicon Valley Bank's management until June 2023 to make changes. The report clarifies that the Federal Reserve Bank of San Francisco was responsible for supervision but the Fed’s board of governors in Washington established relevant regulations and supervisory guidelines.

Best source: Wall Street Journal (subscription required)
See also: CNBC
See also: Financial Times (subscription required)
See also: Reuters (free registration)

Financial institutions adopting climate metrics for variable compensation despite data challenges: FSB
Financial institutions are increasingly adopting climate-related metrics in determining variable compensation, but challenges remain in incorporating sustainability considerations into bonus calculations, according to a report from the Financial Stability Board. It says common challenges are gaps in the availability and reliability of data, developing metrics that are objective and match the institution's strategy, and differing timeframes for compensation and climate-related measurements. The board says climate-related compensation is still an emerging concept, and is encouraging financial regulators to share practice as it evolves.

Best source: Financial Stability Board

European and US energy firms and investors diverge over oil sands divestment question
European oil and gas companies are selling off their assets relating to extraction of petroleum from oil sands, which is blamed for massive environmental damage in the Canadian state of Alberta. TotalEnergies has sold its oil sands business for $4bn to Canada’s second largest oil company, Suncor, while BP quit the sector last year. However, US companies are more reluctant to sell or reduce their operations while demand for oil remains buoyant and Republican politicians continue to take legislative and legal action against ESG investment strategies, and US company shareholder propositions to quit heavily polluting or high-emission businesses have not fared well.

Best source: Financial Times (subscription required)

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2023 Governance Day (PwC): Pictures